The interbank FX market experiences an excess demand for foreign currency driven by both situational and seasonal factors.
Today, on 17 January 2017, the supply of foreign currency is limited primarily due to the coincidence in time of the public holiday in the U.S. (where Martin Luther King's Day was celebrated yesterday) and a business day in Ukraine. Accordingly, the lack of FX proceeds to be transferred to the accounts of Ukrainian banks affected the amount of export earnings subject to surrender requirements today.
In the meantime, other factors mentioned by the National Bank of Ukraine earlier also remained at play. I refer here to a seasonal decline in economic activity, primarily in the agricultural sector, which leads to a reduction in FX proceeds from food exports. Also, the supply of foreign currency in the interbank market continues to be restrained by the abundant hryvnia liquidity of exporters that received VAT refunds for a total of UAH 16 billion in December 2016.
In view of the aforementioned factors, the NBU retains its presence in the interbank FX market. Since the beginning of 2017, the NBU has sold a total of USD 108.8 million to prevent excessive exchange rate volatility.
In addition, the NBU expanded its toolkit to include new instruments to address excessive exchange rate volatility. Last week the NBU intervened in the FX market by selling foreign currency amounting to USD 10 million through FX intervention conducted in the form of request for best quotation, which has proved its efficiency.
With a view to preventing excessive exchange rate volatility, on 17 January 2016, the NBU announced a FX sale auction. The auction amount: up to USD 100 million.